Remarks by Harold W. Furchtgott-Roth
Commissioner Federal Communications Commission
Before the National Association of Broadcasters, Radio Show
Financial Breakfast, October 15, 1998

Good morning. Thank you for having me to your radio show.

The '96 Act

The 1996 Telecommunications Act was, in many ways, a revolutionary piece of
legislation. As you well know, one of the most significant changes that Congress
made in that Act was the revision of ownership limits for radio stations.

Congress rewrote the Communications Act so that it now imposes no limits at all on
national radio station ownership. Congress also relaxed local limits under the
Communications Act, allowing common ownership of as many as eight radio
stations, depending on the size of the relevant market.

The '96 Telecommunications Act did not, however, repeal the antitrust laws or shut
down the Department of Justice or the Federal Trade Commission. But the '96 Act
does, in my opinion, limit the Federal Communication Commission's review of
markets in radio mergers.

Let me be clear that my view on this topic is not widely shared at the Commission,
and that I speak for no one but myself today.

Effect of Deregulation

Since implementation of the '96 Act, the market value of radio stations has shot
skyward. In 1997, the first full year after the relaxation of ownership limits, the
Bloomberg/Broadcasting & Cable radio index jumped 107% in twelve months. By
comparison, their cable system index rose 59%, and the television index 41%. So
radio dramatically outpaced its media brethren, at least in 1997.

Radio stocks outperformed the broader market even more dramatically. As
compared to radio's 107% gain, the Dow Jones Industrial Average increased 23%,
and the Standard & Poor 500 gained 31%. Some analysts predicted that radio
stocks would continue to outperform the market in 1998, although that question has
not yet been answered.

These results may well reflect the inefficiency of the prior era of regulation, in all of
its glory, including the national ownership limits. I do not know what will
ultimately happen to the radio industry, which new technologies will drive markets,
which combination of assets are valuable and which are not, or which firms will
succeed and which will fail. None of these issues is clearly within the scope of the
FCC's governmental interests.

But I do worry about markets, and about the effects of excessive government
regulation on markets. Free markets and competition are a consumer's best friend.
Regulation is an impediment to markets. And excessive regulation, frankly, destroys
markets.

You know, some folks worried about the effect of deregulation of the ownership caps
on format diversity. That worry was not necessary, as time has told. After all, it
makes little business sense for an owner of several stations in one market to program
them identically. Group owners have every incentive to direct their programming
at different market segments and use each station to aim at specific demographic
groups, thereby maximizing the group's total audience reach. To do otherwise
would be to forego audience share. To do otherwise would be irrational.

All of this change that has occurred in the wake of the '96 Act is potentially good for
listeners. And it is apparently good for advertisers, who seem to be able to buy spots
at lower prices due to the cost-savings that group owners may have achieved by
using consolidated sales forces and operating systems.

Good News and Bad News

What Congress did in the '96 Act by loosening ownership limits, then, looks at this
point in time to have been healthy economic reform. That reform seems to be
working in your markets, as the financial performance of radio companies would
appear to indicate. That is the good news.

The bad news is that the FCC is getting in the way of the market's realization of the
full benefits of Congress' reform.

The FCC's Radio Merger Policy

I am talking about the FCC's budding "radio merger policy." Unfortunately for
American radio owners, listeners, and advertisers, the FCC is not processing
applications for radio mergers expeditiously. Worse, it is not processing them
according to the terms of the law.

Instead, the FCC is attempting to impose its own view of the effects of consolidation
on radio license transfer applications - a view that was, however, squarely rejected
by the drafters of the '96 Act, a view that was on the losing side of the Congressional
debate over radio deregulation.

Rolling Back Congress' Deregulation

As I see it, the Communications Act, as amended in 1996, sets the definitive
standards for radio ownership enforced by the FCC. Other government agencies,
with different statutory authority, may consider other factors. But the FCC may
not go outside the bounds of the Communications Act. When Congress set the
numerical limits in the Act for local ownership, Congress made a predictive
judgment about how many stations any one person could own in a market without
triggering FCC review.

Congress decided, for instance, that as long as no one person owned 9 or more
stations in a large market, there was no reason to prohibit multiple ownership under
the Communications Act. Clearly, Congress felt these limits were sufficient to
protect the broadcast policies of diversity and competition: section 202(b), the local
ownership section that sets forth the limits, is even called "local radio diversity."

In going out of its way to pick specific numerical limits geared to market size,
Congress made its own rough cut as to what levels of ownership would be
permissible under the communications statutes, the only law that the FCC is
charged with implementing. The FCC has no power to second-guess those
judgments. If a transaction meets the cut that Congress made in the
Communications Act, that should be the end of the matter, as far as he FCC is
concerned, with respect to competition and diversity.

Regrettably, even when a transaction meets Congress' test under the '96 Act, the
Commission is still not granting these applications. Lately, the Commission has put
some of these applications out for public comment with what it calls a "red flag,"
saying that - and perhaps we need a dramatic drum roll here -

BASED ON OUR INITIAL ANALYSIS OF THIS APPLICATION AND OTHER
PUBLICLY AVAILABLE INFORMATION, INCLUDING ADVERTISING
REVNUE SHARE DATA FROM THE BIA DATABASE, THE COMMISSION
INTENDS TO C0NDUCT ADDITIONAL ANALYSIS OF THE OWNERSHIP
CONCENTRATION IN THE RELEVANT MARKET. THI S ANALYSIS IS
UNDERTAKEN PURSUANT TO THE COMMISSION'S OBLIGATION UNDER
SECTION 310(D) OF THE COMMUNICATIONS ACT . . . TO GRANT AN
APPLICATION TO TRANSFER OR ASSIGN A BROADCAST LICENSE OR
PERMIT ONLY IF SO DOING SERVES THE PUBLIC INTEREST,
CONVENIENCE, OR NECESSITY. WE REQUEST THAT ANYONE
INTERESTED IN FILING A RESPONSE TO THIS NOTICE SPECIFICALLY
ADDRESS THE ISSUE OF CONCENTRATION AND ITS EFFECT ON
COMPETITION AND DIVERSITY IN THE BROADCAST MARKETS AT
ISSUE.

There are many problems with this approach to reviewing license transfer
applications. First of all, the section of the Communications Act that deals with
radio ownership says nothing about advertising revenue share, the apparent test for
determining whether petitions will be "flagged" for heightened scrutiny. I simply do
not see where we get the authority to consider this information.

Moreover, the BIA database that the Commission seems to be using was not
constructed for this form of market analysis. It was developed for entirely other
purposes, and reliance upon it in the context of merger policy is thus a risky
business.

Also, the "relevant market" that the notice purports to examine has no clear
definition at the agency. While the term "relevant market" has a precise meaning in
antitrust law, the FCC has never defined what the "relevant market" is for the radio
stations that are subject to this additional inquiry.

Similarly vague and undefined is the "public interest" standard that the notice
invokes as legal authority to conduct this analysis. The FCC has of course never set
forth any real guidelines for the implementation of this standards - preferring
instead a, shall we say, "flexible" approach that maximizes its discretion - and it has
certainly never done so for purposes of radio mergers.

The chief problem with the FCC's current approach to radio transactions, though,
is this: the Commission is using its generalized "public interest" authority to
override and effectively nullify the specific judgments that Congress made about
acceptable levels of concentration in radio under the Communications Act, and thus
of the FCC's ability to review radio transactions. What authority does the
Commission have to "conduct additional analysis of the ownership concentration in
the relevant market" when that concentration is expressly permissible under the
Communications Act?

Basically, the Commission disagrees with the ownership levels set by Congress in the
'96 Act and is attempting to rewrite history with this back-door review. The
Commission should not be rolling back Congress' determination to deregulate in
this area by coming at the transactions through the back door of the "public
interest" standard, effectively raising the legal bar set by the '96 Act, and making
the implicit threat of a denial of the flagged applications, all when the directly
relevant statutory provisions of the Communications Act affirmatively say that the
transactions are lawful.

Antitrust Authority

I know that many people are genuinely concerned about the effects of concentration
in the radio industry. I am one of those people. But the United States has some of
the toughest and best enforced antitrust laws in the world. They have and will
continue to be enforced by the appropriate authorities.

The FCC is not an appropriate authority in antitrust, however. Although the
Commission seems to be gearing up to conduct its own antitrust review to assess the
"competitive effects" of radio mergers, we at the Commission - with the notable
exception of my colleague Commissioner Powell - are definitely the "junior varsity."
I say "junior varsity" not out of any sense of disrespect for the Commission as an
institution, but in recognition of our limitations and out of respect for the expertise
and unambiguous legal authority of the Antitrust Division of the United States
Department of Justice.

For they are the varsity players on the antitrust field: they have the training, the
experience, the funding, and most importantly, the direct statutory authority -
indeed, the solemn duty - to see to it that the federal antitrust laws are faithfully
executed. We do not have any of these things.

Moreover, for the FCC to conduct antitrust review is to duplicate the efforts of the
Antitrust Division. To have two government agencies conducting essentially the
same sort of review is simply a waste of federal resources. It also a waste of
applicants funds', who must pay fees to lawyers and others in order to go through
the same issues twice. If a particular radio deal raises competitive issues, I am
confident that the Antitrust Division can and will handle the enforcement of
antitrust rules.

Non-Public Standards

Here is my final concern about the FCC's radio merger policy: neither you, nor
your clients, know what it is. What set of facts triggers review of a radio merger at
the Commission? If the Commission is deciding to "flag" certain transactions based
on advertising revenue (not even designed for this purpose), what share numbers
does it find unacceptable?

You can search the vast public record of Commission rules, regulations and
decisions, and you will not find an answer to these questions. That information has
not been made public. Nor have the screens that are seemingly being applied been
promulgated pursuant to the notice and comment requirements of the
Administrative Procedure Act.

I find that troubling. Whatever radio merger standards the FCC has that go above
and beyond the rules set forth in the Communications Act - and, as I have
explained, I do not think the FCC should have any such standards - they must be
adopted pursuant to notice and comment and made known to the public.
Otherwise, federal administrative law is made in a vacuum, and those who must
comply with it have no idea what the relevant standards are before they get to the
Commission.

Given this lack of public disclosure as to the rules of the road for radio mergers, it is
particularly galling for the Commission to rely on the "public interest" standard. As
I said earlier, the Commission has never given any limits to that term, either
generally or for purposes of reviewing broadcast license transfers. And to invoke
that standard based on a review of data not constructed for this purpose, and apply
it to undefined markets, adds insult to injury.

But let's go back to the basic problem of regulatory uncertainty. This "gotcha"
approach to federal regulation - you don't know what the test is until you find out
that you didn't pass it - is bad policy. In fact, it's that kind of policy that offends
the public interest, not radio deals that by all accounts meet the relevant statutory
requirements that we are authorized to implement. It's that kind of policy, with all
its uncertainty, that makes it difficult for Wall Street to back radio deals - at least
not without compensation for the added risk, which, of course, is bad for would-be
owners.

I believe that you and your clients should know in advance what the regulatory
standards are for the deals you want to do. It is only the fair, and it is only the
right, way to regulate. Because without your willingness to invest in the radio
industry, it cannot succeed in the growing marketplace of communications
technologies, where radio faces more and more competitors.

And that risk - the risk of losing our radio industry due to inadequate capital
investment - is what poses the greatest long-term threat to "diversity and
competition" in radio. If we destroy radio by excessive regulation, we won't have
any diversity or competition to worry about.